Real Estate
The Real Estate industry is suffering under the economic uncertainty and high interest rates.
What drives the industry according to public sentiment?
Elevated interest rates and uncertainty about future rate developments cause a very limited market liquidity for the real estate field. Due to this uncertainty, institutional investors are limiting their activity, leading to restricted asset velocity.
Transactions in Germany dropped significantly across commercial and residential real estate accompanied by an increase in the restructuring index.
Regulations are tightening upon decarbonization efforts and increasing sustainability transparency, therefore creating contingent risks for future investment needs.
There is a construction slowdown, with an output growth not expected before 2025.
The financing dilemma from high-leverage paired with increasing interest and limited asset liquidity remains a risk.
How business leaders can take position according to BCG experts?
Seeking open and transparent communication with lenders and other stakeholders is crucial for working towards a consensual solution. If "ordinary" refinancing cannot be achieved, preparing for restructuring with a broad range of available measures is necessary. Charting the course based on the severity of the individual situation is important; the toolbox ranges from focusing on operational improvements to an "all-in" approach. Starting the process early and planning for both the preferred route and potential contingencies is advised. Knowing the stakeholders and managing them closely is essential.
For construction and building material companies, a holistic cost reduction approach is required to gain cost competitiveness. In addition to traditional methods, revisiting the production network from a total landed cost perspective, such as considering network consolidation, is recommended.